Star Infra Developers Limited (SIDL) is a listed real estate development company headquartered in Mumbai. Incorporated in 2000, the company…

Star Infra Developers Limited (SIDL) is a listed real estate development company headquartered in Mumbai. Incorporated in 2000, the company specializes in the development of residential townships, commercial complexes, and mixed-use realty projects across major Indian cities such as Pune, Hyderabad. and Bengaluru. Over the years, SIDL has built a reputation for delivering high-end residential spaces catering to upper-middle-income groups. The company follows a project-based accounting system and recognizes revenue as per Ind AS, based on the percentage of completion method. For the financial year 2024-25, SIDL. launched a major project named "Star Heights", comprising three residential towers and a retail plaza. The company has also diversified into commercial leasing through its subsidiary, SIDL. Estates Private Limited, which owns and leases premium office spaces in Hyderabad's IT corridor. To finance expansion, SIDL plans to make a further public offer (FPO) of 1,200 crores, comprising partly paid equity shares. The post-issue capital is projected at 6,000 crores. The company's promoters currently hold Special Rights (SR) equity shares, which will continue post-issue. The promoters propose to bring in 120 crores as their contribution which will meet the requirement of minimum subscriptions by the promoters, out of which 100 crores will be deposited in an escrow account one day prior to the issue opening and the remaining 20 crores will be brought in within two months after the first call is made to the public. The issue price determined under regulations is 500 per share. The promoters are also willing to contribute beyond the minimum requirement, if allowed. Over the past few years, the company has successfully completed several large-scale projects, resulting in strong cash inflows from customer advances and project completions. As of 31 March 2025, SIDL's financial position reflects a healthy cash surplus arising from project receipts and delayed deployment of funds into new ventures. The management has identified that around 50 crores of funds will remain idle for the next 9-12 months due to regulatory and planning approvals pending for its upcoming project in Pune. To optimize returns on these temporary idle funds, the Board of Directors of SIDL, on the recommendation of its Treasury Committee, has decided to invest in bonds and is evaluating two government bonds to include in its investment portfolio. Bond with the lowest interest rate risk will be selected. Bond X: 5-year maturity, 6% annual coupon, YTM-8% Bond Y: 10-year maturity, 6% annual coupon, YTM-8% The investment in-charge also considers Bond Z, which has a 10-year maturity, but a 9% annual coupon and the same YTM of 8%. SIDL also avails various outsourced services, which are used entirely in India for business purposes including: Architectural and design consultancy from Germany-billed at EUR 8,000 Digital Advertising from Google Ireland-billed - 15,00,000 in INR. Cloud-based project management software subscription from a U.S. vendor for three quarters) from AWS Singapore - USD 10,000 per quarter. Payment is made in foreign currency. This excludes free cloud credits from AWS Singapore worth - 50,000. Online Training for employees (SaaS based) from a US vendor subscription fees USD 5,000 (annual). Exchange rate notified by RBI at the time of supply: USD 1 = 84 EUR 1 = 92 SIDL was assessed to tax for AY 2025-26 as Best Judgment Assessment as it failed to comply with multiple notices issued. The Assessing Officer (AO) determined a total income of 50 crores after making various additions for unverified purchases and disallowance of expenses. Aggrieved, the company filed an appeal before the Commissioner (Appeals) [CIT(A)]. During the appeal hearing, the CIT(A) observed that some of the disallowances were unjustified as relevant evidence had been subsequently produced by the assessee. However, he also noticed that the AO had missed adding certain unexplained credits appearing in the bank account which were not considered during assessment. The assessee requested the CIT(A) to remit the matter back to the AO since the original order was passed as best judgement and important evidence had not been examined. The CIT(A) was considering either - Setting aside the assessment for fresh assessment by the AO.Enhancing the assessment himself by adding the unexplained credits, orPassing any other suitable order as he deemed fit. To take advantage of market opportunities, the company entered into several contracts during the financial year 2025-26. The following transactions were undertaken: (1) The company purchased 1,000 shares of company A on 1 February 2026 from NSE and sold the same on 2nd February 2026 making a gain of 10,000 on NSE. (2) Entered into an index futures contract on a recognized stock exchange to hedge risk of fall in market value of its investment portfolio (3) Entered into a wheat futures contract to earn profit with a wheat merchant squared off before delivery. (4) Entered into a forward contract to sell steel scraps (generated from construction waste) which was not part of its regular business, settled without delivery. During the audit for FY 2024-25, the auditors observed the following: SIDL purchased specialized machinery on 1st April 2024 at a cost of 1.20 crores. The machinery is used in a highly competitive activity where rapid technological advancement takes place. At the time of acquisition, the company estimated the useful life of the asset to be 10 years with a residual value of 5 lakhs. A new advanced technology was introduced in the industry which may render the machinery partially obsolete earlier than expected. The company's operations require continuous use of the machinery for three shifts a day, leading to faster wear and tear. The company's production department is highly skilled in maintaining machinery, resulting in fewer breakdowns compared to industry averages. Legal restrictions and environmental regulations are expected to require replacement of the machinery in 8 years from the date of purchase. The company has signed a contract with a customer for 7 years, after which demand for the product is uncertain. The company has been facing increasing pressure from regulators and environmental activists to adopt sustainable production methods. In response, SIDL has initiated several environmental protection measures. The following are the major costs incurred during the year: Installation of air filtration equipment to reduce dust emissions.Fines and penalties paid for exceeding local noise pollution norms.Salaries of the in-house environmental management team responsible for monitoring compliance and reporting.Purchase of eco-friendly packaging material for finished goods.Payments made to an external waste disposal agency for treating paint related chemical effluents.Training provided to employees on energy conservation practices.Cost of cleaning up soil contamination caused by past operations.Donations made to a local environmental NGO to support a citywide tree plantation drive. CA. Meera is the engagement partner in charge of the statutory audit of SIDE. She has been associated with the company for the last 8 years and has developed a cordial working relationship with its senior management. SIDL requests CA. Meera to represent the company before the Ministry of New & Renewable Energy to lobby for a proposed subsidy policy favourable to the company's projects, and assist in preparing advocacy material and presentations to influence public opinion on the new policy. Further, SIDI offers to reimburse all expenses and pay an additional professional fee for this service. CA. Meera believes her deep understanding of the company's operations will help in effectively promoting SIDL's viewpoint.